The government has published a comprehensive guidance document for non-domestic landlords subject to the upcoming Minimum Energy Efficiency Standards (MEES), outlining a number of government rules including a seven year payback test to determine possible exemptions from the regulations.
From 1 April 2018, commercial properties will not be able to sign new tenancy agreements unless they reach a minimum EPC rating of E. It has been estimated these rules will affect a fifth of non-domestic buildings falling under the scope of MEES but until now, little guidance has been available in preparation for the rules.
Just over a year ahead of their introduction, the Department of Business, Energy and Industrial Strategy (BEIS) has explained how the regulations will be implemented, including details of a number of exemptions.
MEES require landlords of properties rated at EPC F or G to improve the property to at least an E, or register an exemption should one apply, when the tenancy is being renewed or extended, or a new tenancy is being granted.
The seven year test
One of the main exemptions available is through the seven year payback test when the installation of energy efficiency improvements will only be required where the recommended measure (or a package of measures) achieves an energy efficiency payback of seven years or less.
This is decided when the expected value of savings on energy bills resulting from the improvements over a period of seven years, are equivalent to, or greater than, the cost of repaying it.
If the energy savings are shown to be less than the calculated cost of repayment, the measures will not meet the payback test and will therefore not be deemed suitable under the regulations. Otherwise, the measures will have met the test and will need to be installed.
Where a landlord is intending to rely on an exemption because a recommended measure does not meet the seven year payback test, they will be required to provide evidence of the capital plus installation cost in the form of three separate quotes.
It is thought this rule will not affect the majority of measures available under the scheme, with lighting retrofit programmes and installation of building control systems and optimisation of control settings often being delivered well within this timeframe.
It is more likely to affect higher capital cost measures, such as replacing plants to more energy efficient alternatives, however these are not likely to be a sought after solutions for those landlords with buildings under the MEES threshold.
Another exemption is in place for landlords that have made all the relevant energy efficiency improvements that can be made to the property and the property’s energy performance remains below an EPC E.
This allows a five year exemption after which the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency.
A five year immunity will also be granted if it can be proven via a report from an independent RICS registered surveyor that the installation of specific energy efficiency measures would reduce the market value of the property, or the building it forms part of, by more than 5%.
Further immunities include properties where consent from a relevant third party or from a tenant is not granted; if a person becomes a landlord suddenly; or if a property is not required to have an EPC rating.
However, if a property does not fall under any of these exemptions and meets the seven year payback period, the landlord must carry out the work to improve the energy efficiency to at least an EPC rating of E.
Enforcement and penalties
MEES will be enforced by local weights and measures authorities (LWMAs), who may serve compliance notices if they believe a landlord is in breach of the regulations. Failure to provide documents or information requested by a compliance notice, or failure to register information on the PRS Exemptions Register as required by a compliance notice, may result in a penalty notice being served.
If it is proven that a landlord has been in breach for less than three months a financial penalty of up to £5,000, or of up to 10% of the rateable value of the property (whichever is greater) can be given, subject to a maximum financial penalty of £50,000.
For three months or more, this rises to £10,000 or 20% of the rateable value of the property up to a maximum of £150,000.
Other fines of £5,000 can be applied if a landlord is found to have published false or misleading information on the PRS Exemptions Register or if the landlord has failed to comply with a compliance notice.
If a landlord does not pay a financial penalty imposed on them, the enforcement authority may take the landlord to court to recover the money.
Finally, LWMAs will also be able to publish some details of the landlord’s breach on a publicly accessible part of the PRS Exemptions Register, which will be available for view by the public for at least 12 months.
The publication of the 71-page document has been long-awaited by industry, which has been preparing for the introduction of MEES on 1 April 2018 for years.
John Alker, campaign and policy director for the UK Green Building Council, said: “We warmly welcome the publication of guidance for minimum energy efficiency standards. The regulations have already had a galvanising effect on the commercial property industry, which has been working hard for the last few years to prepare for these regulations.
“This guidance provides vital clarity to commercial landlords about compliance and enforcement ahead of the regulations coming into force next April.”
For more information on the MEES regulations, and a full list of the measures eligible under the rules, click here.